Industry trends: Hemoperfusion is in line with the development trend of blood purification, and clinical superiority has been fully proven.
Although the company's performance has fluctuated in recent years due to a series of external factors, we believe that its technology itself is advanced, in line with the development direction of the industry, and has clinical efficacy and superiority. Performance fluctuates temporarily, but industry trends are long-term and stable. Maintaining a high level of compatibility with industry trends is a key element for the company to break out of the trough, successfully overcome the adjustment stage, open a new chapter of growth, and achieve long-term growth.
The core factor that determines the quality of blood purification is the removal of medium- and macromolecular toxins. Comparing different blood purification methods (high-volume hemofiltration, high-throughput hemodialysis, hemoperfusion, etc.), it can be concluded that only high convection capacity and high clearance rate can improve the survival rate and quality of life of patients. The most critical point is the removal of large and medium molecular toxins. However, the ability of hemoperfusion to remove medium to large molecular toxins and protein-binding toxins is outstanding in many blood purification methods. At the same time, hemoperfusion has targeted adsorption, which does not remove beneficial substances from the human body at the same time, and has fewer side effects.
The company's series of academic achievements have formed a complete system, laying a solid theoretical foundation for the long-term development of the overall hemoperfusion industry/treatment technology. The most important of these were two RCT studies on Jianfan HA130 led by Academician Chen Xiangmei and Professor Jiang Gengru. The relevant results showed that Jianfan hemoperfusion products can improve blood indicators and dialysis complications, significantly reduce the all-cause mortality rate of uremia patients, and prolong patients' lives. Academic results have also been published in the international journal “Annals of Translational Medicine.” The National Health Commission's “Standard Operating Procedure for Blood Purification (2021 Edition)” also clearly states that treating the HA resin blood perfusion device (Jianfan product name) in series with a hemodialyzer once a week for 2 hours can significantly improve the clearance rate of serum IPTH and beta2 microglobulin in maintenance hemodialysis patients and improve symptoms of pruritus.
Fundamental logic: Blood purification patients around the world and China continue to grow, and there is considerable room for the company's penetration rate to increase.
Patient numbers: The number of kidney replacement patients worldwide continues to grow. The number of kidney replacement patients worldwide exceeded 3 million in 2015, and the number of global kidney replacement patients is expected to exceed 5.4 million by 2030. The incidence of CKD in China is 10.8%, and there are about 120 million patients with chronic kidney disease. The total number of dialysis patients in China has maintained a relatively stable compound annual growth rate of about 10%, but indicators such as the number of new dialysis patients, dialysis prevalence, and incidence rates have all shown an accelerated upward trend in recent years. The total number of hemodialysis patients in China reached 840,000 in 2022. The compound growth rate was 13% in 2012-2022, and the compound growth rate was 10.1% in 2019-2022.
Company penetration rate: (1) Based on the number of patients already covered: As of 2022, the penetration rate of the company's nephropathy products to dialysis patients (number of hemodialysis patients treated in combination with Jianfan hemoperfusion devices/total number of hemodialysis patients) was about 32%, an increase of about 10 pcts compared to 22% in 2019 before the epidemic, while 2019 increased by about 9 pcts compared to 2014. The rapid increase in penetration rate is expected to be related to the launch of authoritative clinical trial results and gradual standardization by academic companies .
(2) Based on market space: According to domestic estimates, the company's theoretical sales space for nephropathy is about 26.2 billion yuan, liver disease is about 17.6 billion yuan, and sepsis is about 27.1 billion yuan. In addition to various other segments, the total domestic space exceeds 70 billion yuan. If the penetration rate is calculated based on sales amount, then the company's overall penetration rate for the main indications already covered is about 3%-4%, and it is only domestic, while overseas is still far lower than domestic.
Increased frequency of treatment brings flexibility: An increase in the average treatment frequency of Jianfan hemoperfusion patients from 1 to 4 times a month will bring high elasticity. Under the same patient base scale, it can bring 4 times the previous market space, thereby fully offsetting the impact of various forms of price decline that may occur in the future.
The company has seen results in a series of adjustments in the past two years and is expected to break out of the trough.
In 2022 to 2023, the company focused on adjusting and reforming the channel inventory and sales management model. Specific examples include paying close attention to team execution, deepening academic promotion, upgrading the organizational structure, optimizing resource investment, changing assessment incentives to focus on use, removing inventory, promoting professional transformation of sales teams, and using informatization to build refined management. According to the company's investor relations records, the current inventory level of the company's dealers has maintained a downward trend, which indicates that the reform measures have borne fruit in the process of improvement.
New product expansion and internationalization open up the company's medium- to long-term ceiling.
For different conditions such as uremia, liver disease, sepsis, and lupus erythematosus, the company has developed different products such as HA series, KHA series, BS series, CA series, DNA immunosorbent columns, etc., and can also develop different product types for different conditions and treat more types of diseases. In 2022, the company added 5 new product registration certificates (hemodialyzers, 3 hemodialysis powder products with different formulations and citric acid disinfectant) and 1 new product CE certificate, further enriching the range of products in the company's entire blood purification industry chain. Achievements such as new registration certificates are expected to continue to emerge in the future.
Although the company accounts for less than 5% of overseas revenue at this stage, COVID-19 treatment products have strengthened the company's brand influence on a global scale. Combined with the company's increasing emphasis on overseas business, long-term overseas expansion can be expected. As of mid-2023, the company has sold a total of products in 87 countries, covering fields such as kidney disease, poisoning, liver disease, critical illness, rheumatological immune diseases, etc., and has entered the medical insurance catalogue in 13 countries including Germany, Vietnam, Iran, Russia, Turkey, and Saudi Arabia. The company's overseas team continues to grow, promote localization, and hire top international experts in the field of blood purification as medical consultants, such as:
Professor Ronco (President and founder of the International Institute of Nephrology in Vicenza, Italy), Professor Vanholder (former president of the European Society of Nephrology).
Investment advice:
Buy-A investment rating, 6-month target price of 32.13 yuan. We expect the company's revenue growth rates from 2023 to 2025 to be -18.5%, 104.6%, and 33.2%, respectively, and net profit growth rates of -45.4%, 113.8%, and 35.0%, respectively, with outstanding growth; maintaining the investment rating given to Buy-A, the target price for 6 months is 32.13 yuan, which is equivalent to a dynamic price-earnings ratio of 25 times that of 2024.
Risk warning: Pharmaceutical industry policy uncertainty, penetration rate growth rate falling short of expectations, uncertainty in international business and new product release, assumptions and estimates falling short of expectations.